The Pros And Cons Of Insider Trading

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The term “insider trading” is defined by the Black’s Law Dictionary as -“The use of material non public information in trading the shares of the company by a corporate insider or any other person who owes a fiduciary duty to the company.”
Insider trading can be subjected to many definitions and connotations and it encompasses both legal and prohibited activity. Insider trading takes place legally every day, when corporate insiders – officers, directors or employees – buy or sell stock in their own companies within the confines of company policy and the regulations governing this trading.

Trading becomes illegal if any insider in a company having the price sensitive or any confidential information uses it to buy or sell its securities thus …show more content…

The extent and severity of the abuse and penalties vary wildly from country to country. Trading of shares of a company by any person who is considered to be an insider, does not amount to disobedience of law just like that. Considering an illustration where an investigative reporter has interviewed any insider and by that he gets access to some inside information by his determination in revealing a corporate fraud and disclose the fraud. The future actions of any person can result in the creation of inside information like when a person has to bid in a tender offer coming in future, he knows by his actions that the price of the target company will …show more content…

Trading restrictions: This amounts to restricting the insiders from trading within a certain period of time i.e. prior to the corporate announcements, buybacks etc. The insiders are restricted to trade in securities for certain definite time periods whether directly or indirectly for the purpose of preventing them for making personal gains and benefit from the material information which they possess. Even after the information is made public, they could be restricted to trade in the securities for a certain period of time and the trading window is remained close for them for such span of time. By this measure it is ensured that the material information which could act as an advantage for the insiders is first effectively disclosed to public. Even a stricter measure would be to make it mandatory for the insiders to trade in the securities only through a particular trading window which is monitored and managed by the company or the stock

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